All is Fair Game

According to
the Bureau of Labor Statistics, the unemployment rate rose 0.2 percentage
points from 5.1% in January 2016 to 5.3% in January 2017. The unemployment
rate increased due to more people looking for work and compares favorably to
Georgia (5.5%) and higher than the US (4.8%). The Atlanta metropolitan
statistical area nonfarm job creation totaled 96,800 in the Atlanta-Sandy
Springs-Roswell metropolitan statistical area over the past year. Office
using jobs (information, professional and business services and financial
activities) added 35,100 jobs during the past year.

The Atlanta
office market recorded a negative 182,009 square feet (sf) of overall
absorption during 1Q 2017. Direct absorption totaled negative 13,178 sf.
Absorption during the first quarter was off to a slow start for 2017. Major
occupancies by State Farm, Anthem, Regus, Kore Telematics and Rock 10 were
not able to overcome vacancies by Coca Cola, State Farm sublease and several
small to mid-sized companies. Absorption is expected to increase during the
rest of 2017. Global Payments, State Street Corp., Racetrack, Anthem, and
Equifax are all expected to occupy more than 50,000 sf during 2017. As the
Class A vacancy rate continues to drop, demand for space in Class B buildings
is expected to increase. Currently, only ten existing Class A buildings can
accommodate a user larger than 100,000 sf. Demand for space is expected to
continue as corporations continue to find Atlanta a good match for their
Southeast destination.

Due to an
ongoing increase in demand for space, the total vacancy rate has dropped from
17.2% in 1Q 2016 to 17.1% at the close of first quarter 2017. Direct vacancy
rates dropped 0.3 percentage points from 16.5% to 16.2% during the same time
period.

Weighted
average rent growth continued to improve during 1Q 2017 especially in Class A
properties in Buckhead, Midtown and Central Perimeter. Weighted average
asking rents in all classes rose 5.0% recording $23.38 per square foot (psf)
at the close of 1Q 2017 compared to 1Q 2016. Class A weighted average rents
rose 6.2% year-over-year, recording $26.20 psf at the close of 1Q 2017. Class
B rents rose 1.8% year-over-year, recording $20.33 psf at the close of 1Q
2017. We expect rents to continue increasing during 2017 with higher escalations
in Class A buildings in submarkets with low vacancy and construction
activity. Class B weighted average rents are expected to follow suit as
options in Class A buildings drop.